John James: Raising $100M in Ecommerce

Recently we had the pleasure of sitting down with John James of Hayseed Ventures to discuss how he, as one of the first pioneers in ecommerce, grew his online stores in time when most people didn’t even have an email address. As a serial entrepreneur John has built and sold multiple businesses centered around search engine marketing, including ventures in keyword arbitrage, multichannel niche retail, and hyperlocal online media.

Check out the latest episode to learn how he grew his multi-million dollar ecommerce businesses and how he managed to raise $100M from General Atlantic in New York as an ecommerce entrepreneur based in Arkansas.

Nathan:What is up all? Welcome back to another episode of e-Commerce On Tap, today we have an amazing entrepreneur on the show John James. John, thanks so much for joining us today, how are you?

John:I’m doing well, thanks for having me.

Nathan:Amazing, my pleasure, and you know on e-Commerce On Tap here by Sourcify, we really first like to understand someone’s background because there’s such a diverse group of people in the e-Commerce industry and we think it’s so incredible to see how people actually get into e-commerce.

So, before we dive into the actual dynamics of what you do, can you tell us about yourself, where did you grow up? What was your childhood like? You know, really tell us kind of your upbringing and then what led you to where you’re at today.

John:So, I grew up in Arkansas in the middle of nowhere basically, and I learned to program a computer in 1980. I was 6 years old so not too weird for a young kid to know how to program today but super weird for a nerdy little skinny 6 year old to learn how to code. So, my dad was a Computer Programmer in the Air Force and got a job as a data processor so he’s super early in computers as a whole.

I was just really lucky to be around him at such an early age. I started a bulletin board system in I think 1989 or so, I was a 14 year old in eighth or ninth grade and ended up having four phone lines running into my bedroom, and people will dial from all over the country and download stuff off the bulletin board.

Nathan: That’s awesome!

John:Yeah, it is like how did that happen in the middle of Arkansas in that time? And came to college in 1993 which was absolutely the perfect time, most people didn’t have an email address on college campuses in 1993 but you know we had this broadband Ethernet going into the dorm rooms, and so I got an early, early exposure to the Internet really before browsers were even mainstream.

Netscape wasn’t even out yet, you had to type in this series of digits in order to go anywhere online, and so I just learned the guts of Unix and the guts of the backend of the Internet and through that started my first eCommerce business in 1995, and I sold Quiz Bowl questions which was basically a four on four version of Jeopardy for high school kids.

We had won the state championship and I wrote questions and study aids and sold them through direct mail and pointed people back to a very rudimentary early version of an e-commerce site, so that’s really how I got into e-commerce, which was 23 years ago.

Nathan:What were you guys running on back then? Wasn’t Shopify, huh?

John: No, you would write your own HTML and you’d code it from scratch. There was really no way to do it other than to program it yourself, and there was no security in the shopping cart, I mean we people just typed in their credit card numbers and their PO numbers and they sat in a text file, and it was kind of nuts the way it worked.

Fast forward a few years I went to medical school, paid for my Med school education with that little business. in 2001, I was an intern so I’d finish Med school, worked hundred hour weeks as a family practice resident and about a month after 9/11, my brother and I were hanging out and he was a president of a grill manufacturer Sunbeam which is out of business now, he said, “We need to sell grills online” and I kind of laughed at him like “I work one hundred hour weeks, about to have my first kid, I’m running this Quiz Bowl business, you need to go somewhere else.”

I was on call the next night and it was the only slow night of call I’d had in three years and I built grillstuff.com in one night and I called him up and said, “Hey man, go to grillstuff.com” He looked he said, “This is perfect, who’s is this? And where did you find this?” I said, “Well, I built it last night when I was on call, I need to get some rest but after I wake up we’ll talk about it”

So, that’s how we started that business we moved from there into several different categories, auto racing safety equipment was probably our biggest one, we had close to, you know, 8-10 stores up and running and bootstrap, a ten plus million dollar business in a couple three years, it was a pretty quick rise.

Nathan:What did you guys do for fulfillment and you know, how were you even sourcing products back then?

John:Well, you started by filling it out of your own basement and you started by answering your own phone calls when you have problems, and of course you did because I’m not a professional fulfillment guy by any stretch.

You’d have to know people that source products at that point. My brother was the president of probably the third largest grill company in North America and he called other grill companies like Webber, we were definitely the largest single location retailer of Webber on the planet, and then we went from there into auto racing safety equipment which is smaller industry, a little easier to get into, my brother’s a national championship racer.

So, we were able to get in and do that, that was a pretty neat business, I sold it at the end of 2008 and in January of 2009, hey I only start businesses at the height of financial crisis so right after 9/11 and in the financial crisis of 2008. So, January 1 of 2009, I started Acumen brands, and the thesis around that was different, I had seen an article in Harvard Business review that said, “In times of crisis, brands that spend money on marketing take over a huge amount of market share.”

So, that’s what we decided to do was, we didn’t know what we’re going to sell, we didn’t know what we’re going to do, we knew we we’re going to build our own software, and we knew we were going to spend a lot of money on marketing but it was really the thesis.

We started to find some smaller niche categories that hadn’t been exploited like scrubs, medical scrubs, as a perfect example, is about a $2b industry and Mom and Pops were the ones kind of dominating it so we kind of came in and said, “We want to be the professional sports team in a group of high school teams” and that’s what we did we opened scrub shop then immediately opened a store called ‘Tough Well’ which was work like Dicky’s and that kind of stuff.

Nathan:Were you selling other brands products or are you sourcing directly? Where do you get the products that you’re selling?

John:From other people, we were just the dumb retailer when you boil it down, or we get wholesale contracts and try to buy the thing smartly. So, we did not take inventory a lot of time so we would start off as dropship but then it morphed pretty quickly into a business where we installed robots, we raised the first round of Venture Capital in Arkansas in over a decade and with that money, we built an exquisitely efficient split case fulfillment center with Teva robots running around it.

And so, fully automated that you could place an order and it would be out the door within 15 minutes I mean it was— for 2009, it was unbelievable.

From there, we opened about 20 stores on their own software and that’s kind of what led me to Engine which we get to later we built our own software to run our own stores and it was pretty fantastic, the system that we built.

We had 20 stores running, we were really a harvest to demand model off of Google so someone searches for, let’s say cowboy boots, there are 135,000 searches a month off on Google and we would harvest that demand. Well, if you look on Facebook, this is where it got interesting, Facebook’s platform was just coming out, you could just start advertising on it. Well, there are 18.2 million women potentially that could wear cowboy boots, redneck women as I called them, I married a redneck woman so I can say that and I’m a redneck myself, you can’t say it but I can.

18.2 million in the demographic but only 135,000 of those every month are saying, “Hey! I want cowboy boots.” So, we thought if we could somehow go up the chain and establish a relationship with them and that’s what we did, we built 9 million Facebook fans, had 11 million email subscribers and we did that in about 4-5 months.

Nathan:This is when Facebook’s advertising platform had really started, I mean it was a lot easier to do in some sense than it is nowadays.

John:It was a lot harder to execute but a lot easier on the paper clicks side so I mean you could buy mobile clicks for a penny, we could get email subscribers for like 8-9 cents, and we’re making $4-$5 off of an email subscriber when targeted correctly.

So yeah I was shooting fish in the barrel, it’s just like the early days, used to be able to buy the word barbecue grill for a penny. Well, costs a dollar now, way more than a dollar.

You know, we’re at the right place right time and ended up raising– you know, we grew the business for about a $5 million revenue run rate to over $100 million revenue run rate in 3 months. So, that was a lot of fun, I mean you appreciate how you source that much in product, you don’t.

So, we’re selling excess in obsolete from every manufacturer. We cleared out a whole industry of excess in obsolete. We even took profit from other retailers I mean that’s how desperate we were just to have something, yeah it was nuts, raised a $93 million Series C from General Atlantic out in New York and it was probably one of the 4-5 largest ecom financing of all time at the time and we did it right there in the middle of Arkansas, and it was kind of nuts.

Nathan:That’s incredible. I mean that just goes to show that you don’t have to be in these hotbeds to really grow an eCommerce company.

John:You don’t, it’s a great field leveler, it democratizes commerce, an ex Dr. sitting in the middle of Arkansas can build $100 million business in 39 months, it’s a pretty incredible piece of technology.

So, after we did the round, we sold the majority of the business and I stepped away about 18 months after that and started an eCommerce startup studio, so we started 12 businesses in the span of about 18 months all of them eCommerce related.

The first one was a Tuxedo rental business called Linquin and we moved them from Atlanta to here in Fayetteville Arkansas, 2 years after they moved here, they sold the business for $25 million. So, we were lucky, our first deal had a great group of partners they were doing about $5,000 a month when they moved here so it was a tiny little business and to scale it up that rapidly was great.

Nathan:What made you believe in that business and kind of want to spearhead that growth?

John:Well, number one I like the dudes running it, Justin and Bogden the guys on the Linquin team are just cool, are fun to hang out with. Number two their net promoter score was better than Zappos. So I mean if you rented a Tuxedo from people just absolutely loved it so I knew they had a good product. Good product, good team, and I saw a way to spread it to the masses.

So, I came in and said “Hey here’s some of the marketing tricks you ought to do” and you know all the credit goes to the team, I just kind of nudged them in a direction that I had seen work before around email collection and how you nurture a lead, and that was a great team, a great product and I gave them half of a percent of value on that and did all the work themselves.

Nathan:That’s incredible! So, what was next after that? I mean that was one of quite a few different eCommerce companies during those years.

John:Our second one was Aptitude, it’s a school communication platform which doesn’t seem like eCommerce, it really is, they build school websites, apps for the school of communication platforms basically CMS for the management of a school and they raised $6million Series-A, which those are rare, and Arkansas I think is the fifth or sixth one in the last decade, we were the first or second, third of those and so it’s pretty neat to see one of our companies do well, and super optimistic, we had a port call with them this morning and I think they got 70-80 pokes that they’ve hired from, one person only co-founded it and then the twelfth and final one out of there is engine.

So, that was the whole goal of this was to increase entrepreneurship in Arkansas yet make a few good investments but ultimately, it was to find the one that kinda was better than all the rest and that be the one that I ran, and that’s Engine our new e-commerce platform we’re building.

Nathan:So, tell me more about Engine, I mean I checked out the page, it looks like you’ve got some pretty cool stuff going over there.

John:We do, we got the gang back together. Jim Kane, I have known since sixth grade, he actually helped me build the bulletin board system when we were youngsters. 14-15 years old and he was the CTO at Acumen brands, the first employee, and every venture capitalist we had on that team said, “Jim’s the best CTO we’ve had in any of our portfolio companies” so it was pretty neat to know that “Hey, I grew up with this this guy, known him for a decade”

So yeah, this is kind of maybe or maybe our last go around together building a final software project. I’m really thinking about simplicity but for an upper level store. So, if you look at Shopify, we’re never going to beat Shopify, they’re super simple as you can get, if you want to pay $29 a month and your Mom and Pop and you want to sell three widgets, Shopify is perfect.

If you start selling half a million or a million dollars a year you start to run into problems with Shopify, you can have it in any color you want as long as it’s black, it’s highly uncustomizable.

So you start to see the ceiling at half a million or a million, indefinitely about $2 million of annual revenue. That’s where we want to come in, so we want to be an up-market version that’s highly customizable yet still a managed cloud-hosted solution that is insanely simple to get up and running. So you take that kind as a demographic and how we do it and then you layer on top of that some of our secret sauce of what we did with 11 million email subscribers, how you would manage the life cycle of a lead, and so we built a lot of marketing technology built into the platform, so it’s an e-Commerce CRM.

Nathan: So walk me through some of the main features, I’m trying to understand more because there are a lot of, you know, 7-8 figure sellers that will be tuning in and I think they’d like to learn more about some of the core features in terms of even just the email or your CRM system you’re talking about, you know, right now probably a lot of these guys use like Mailchimp or Klaviyo, stuff like that, or Bronco, walk us through kind of the core features that you think will benefit these e-Commerce Entrepreneurs that are really trying to find the right way to manage their stores and grow them.

John:I mean I think the first thing that you’d say to those guys is, “How many different logins do you have to manage your business?” and it’s twelve, it’s eight and so what we want to do is have everything in one system, and what’s interesting about that email platform that I described to you is it’s really all about cascades and flows, it’s all user generated vent.

So, if user X comes in and does event Y, well cascade of events Z should happen and it’s really hard to build that outside of the platform itself and we’ve done some integration between Shopify and Klaviyo and you can get about 80% there but it’s super hard to set up and get it done right. I don’t think you can actually do what we do in Shopify plus Mailchimp but Klaviyo is not bad and that’s really, really, really hard to do, so to simplify that is one big thing.

The second thing is the ability to customize and get into the actual code itself, so Shopify is a black box, Magento 2.0 is a black box, BigCommerce demand, where all those guys are black boxes in that you can change certain things but there are certain things that you really might want to change and get under the hood and be able to do.

So, we’re really looking for stores that have a full time developer if not 2-3 on staff, and in the past what they would do is build their own system from scratch. Well, I think that’s a fool’s errand today as well I’ve done that I had 30 developers and 20 designers just to pull it off to sell a lot of cowboy boots.

Lot of things like that, a lot of AI kind of built in the platform, it’s kind of the marketer’s e-Commerce platform. Where marketing technology kind of intersect is where we’re going to carve out a little niche for ourselves.

Nathan:Yeah that’s awesome. I mean it’s interesting because I see companies for example that are scaling up so fast like ‘Movement Watches’ or ‘Gymshark’ or all these incredibly fast-growing brands and you know, sometimes, they have to use so many different tools to track a user through their whole funnel it’s sometimes crazy, it sounds like Engine could be a good resource for them to utilize.

I want to dive into two of the dynamics that you see of scaling up an eCommerce. You’ve grown eCommerce brands, and invested in a lot of different ones as well to 8-9 figures.

What changes when you get to that stage, you know, you aren’t going to be doing the day-to-day obviously, you’ve got to be focused on strategy and the greater vision but when you’re just starting out, like when you started out with, you know you were in a 4-person team and grew it over 200 employees, it’s a different dynamic but how does your role change as a founder and CEO?

John:I don’t know that I’m the right person to ask. I’ll tell you my personal thoughts on that, I mean if you read Fred Wilson from Union Square Ventures, he says, “A CEO should do three things- they should make sure the company doesn’t run out of money, they should recruit hire and retain the best talent and then they should set the vision and communicate it to all the stakeholders.”

So, if I looked at me maybe in the early phases, yeah that’s what I did but I had a fourth task and I was head of product and I was also head of growth marketing. So, I was the guy that ultimately decided what went on the website and why and likewise what ads went out on Facebook? What the bids were? How would you manage that?

What’s the SEO strategy was the end bound link strategy so it’s really weird as I look at it as my role in CEO, yeah I made sure we didn’t run out of money, I went and found venture capitalists and I pitched them, and yeah I retain talent, I never necessarily recruited it, so my job though, as a 5-person company, I was the typical normal 4-5-person startup CEO. It was all those things and more. When you scale to twelve, all the sudden now you’ve got some people doing specialized things, at five everyone’s a jack of all trades, everyone can do everything, everyone cross covers everybody, at twelve you start to get some specialization and we nailed that transition where the first five people around the table were rockstars. A-players attract other A-players so getting to twelve was super easy. We got to 30 pretty seamlessly as well because again a’s attract a’s. We probably had three or four B-players maybe B-minus players that would not stand out in government jobs, they would keep that for 50 years and get top level evaluations but they stuck out like a sore thumb in our team of As and you call it out and we got rid of 3-4, where we screwed up though, is we grew too quickly.

I mean how do you not, I mean you go from $5-$100 million run rate in 3 months and you’re hiring everyone that can fog a mirror, and we messed the culture up. I think to do it again, I think you go a little bit slower, a little more measured, it’s a champagne problem but nonetheless we got super drunk and messed up a lot of the culture that we built.

So, we had a lot of cleaning up to do after we did that. Ultimately after 18 months after we sold the majority I realized I’m not the right guy to do this and don’t want to be the right guy to do this, so we learned a lot of lessons, hopefully I won’t repeat as we scale up Engine to a larger size.

Nathan:I mean it’s interesting because as you grow you know your focus and responsibilities change, and I think one of my biggest learnings as the CEO of Sourcify, is that you’ve got to hire A-players that can crush their specific goals. For example, our growth marketer has grown a blog organically to over 600,000 a month, you know, I’ve seen the blog, I’ve seen the traffic, incredible what he does and we’re already ranking for some keywords that probably should have taken us 3 years to rank for.

So, it’s kind of interesting as you grow because when I started, I was doing all the growth marketing and it’s a transition of really finding the right people to fit some of those roles. I want to dive into– you know we’re going to wrap up here in a few minutes– but I really like asking what people think about the future of eCommerce, and you know, we kind of see this trend in retail where retailers are stores, you know brands are basically going more directly to consumers and it’s crazy because for us especially on the ground floor in China, we see all these factories that are asking us, “How do we sell directly to consumers in America? How do we sell directly on Amazon or eBay or create our own Shopify stores?”

What in your mind do you see as really the future of eCommerce and what should we look out for? Are retailers all going to be gone in the next 10 years, is everyone just going to shop online? What are some of the trends that you see?

John:Well, the trend of being a retailer selling other people’s stuff, that’s over, Amazon won, Wal-Mart doesn’t know that Amazon’s won, so they may come in a very close second. Everyone else has already lost that game so put on your 5-10 year lens from now, retailers who don’t have a very specific value-add to the equation just become a dumb supply chain and there’s no need for those.

What excites me though is just opposite, is that direct relationship to the consumer, the digitally native vertical brands the Warby Parkers, Casper, Benovos was one of the first, Handy I believe was the one that coined that phrase and those are the ones that excite me.

And going a little bit further, it’s the ones of those that have such a good relationship with their end user and their consumer that they’re not dependent on other platforms. I always say, “Don’t be Google’s bitch” meaning don’t build your business around an arbitrage off Google because it could go away, likewise don’t be Facebook’s bitch, I did it, I mean I had 11-9 million Facebook fans and all of a sudden, our organic reach goes from 56% per post to 0.5%.

So, it’s crazy you don’t control that, you’ve got to get off that platform onto your own and emails are good, I mean it’s the best thing we have today but if you fast forward 5-10 years I think the retailers that win are the cockroaches and those that are still around are the ones that figure out not only to have a direct relationship with their own platform, very, very hard to do.

Nathan:Yeah, I mean you hit the nail on the head there where everything’s going more direct and in mind like you’re saying, I mean it’s incredible that dynamic, it’s one of the kind. Last question that I like to ask because we do have some listeners that are starting off on eCommerce and really just starting to grow their stores, if you are going to go start your own brand tomorrow, start your own eCommerce store but with the knowledge that you gained over the past years being in eCommerce, what would you do? What would be your first step forward? How would you get you that scale you talked about with Casper and all these other fast growing eCommerce brands?

John:So, I like to start with the brand in the target market first before I even look at the product and that seems really interesting to think about, but first of all, you got to define who you’re going after, figure out what traits you share in common with those people and figure out a way to actually talk to them.

So, I kind of start with the growth marketing strategy in the beginning, and then what is the product that fits that, and that’s a dangerous equation to go that way because it usually starts the other direction but all my success have been that opposite direction.

Back in the day, you’d pull up your search tool and you’d see how many people search for this keyword and then you could go build a business out around that business or around that keyword. And today, it’s the same thing on Facebook, so find a decent sized total addressable market that is not fully exploited and solve real paying points for it with a product.

So, that’s a very broad way of answering your question but I can guarantee you that a digitally native vertical brand that would start online and then would branch out from there either through its own stores or selling to other retailers or even Amazon believe it or not.

But I am excited to be building picks and shovels in eCommerce software instead of actually being a practitioner or a miner trying to do eCommerce, these days it’s hard and you can definitely still build a really, really nice business, was quite a bit harder than it used to be. So, I don’t know if I answered your question but I definitely gave you something there.

Nathan: I really like that approach, I think a lot of people try to start with the product or something but why not actually start with the total adjustable market like this and that’s a great approach right there.

John: I’m so much for a solution in search of a problem and what I’d rather have is figure out a solution to a problem.

Nathan: Exactly, exactly! Well, John, thanks so much for coming on eCommerce On Tap. If people want to reach you, how can they find you? How can they get in contact?

John: Find me on LinkedIn and my email is John@engineinsidestock.com and we’re moving over to a new domain but LinkedIn is definitely the easiest. And I answer most things that come through my inbox believe it or not.

So, and also you need to send me your content marketer’s resume, I promise I won’t try to steal him from you or hire him or anything like that, he sounds fantastic. You guys are doing great things too, maybe we’ll hook up offline around what you’re working on as well. Thanks for your time.

Nathan:Yeah definitely, thanks again for coming on. Guys, that was another episode of eCommerce On Tap today, tune in to the next one also, see you again.